Over dinner with Milton Friedman several years before he died, I offered the great man a compliment. He refused it.

I had just re-read God and Man at Yale, the 1951 book in which William F. Buckley Jr., denounced the leftist attitudes he had encountered among the Yale faculty and administration as an undergraduate. Buckley singled out the department of economics as the most collectivist department on the campus. "Today," I said, "nobody would call the economics department at a major university 'collectivist.'"

Academia as a whole may have continued its long, sorry wobble to the left, I continued, but the economics profession had proved an exception, moving the other way. Departments of economics across the country now grasped the importance of free markets. "Mises, Hayek, Stigler and you," I told Friedman. "You've transformed the intellectual climate. You've won."

Friedman shook his head. "We may have won the intellectual battle," he replied, "but in practical politics, it's difficult to see that we've had any effect at all."

Government spending had continued to grow, he explained. After a pause during the Reagan years, regulations had once again proliferated. For a moment, Friedman grew silent. Then he looked at me.

"The challenge for my generation," he said, "was to provide an intellectual defense of liberty. The challenge for your generation is to keep it."

As Peter notes, the decline of principled commitment to economic liberty has been a bipartisan affair.

Waht make you think I did not read till the end? Just because most have enslaved themselves including those who call themselves Republician does not change the fact. It is leftism that is the problem. Never have I thought all Republicians are for liberty. That would be foolish. But I do know leftism is not. It is opposed. Why people choose to do so espically the educated in a mystery to me.

I recall a historian of the Revolution, and especially the fierce debates between the Federalist supporters of the new document and the anti-Federalist supporters of the original Articles of Confederation told me once of the likely response by the woman Franklin allegedly admonished "A Republic, Ma'am, if you can keep it"...

She probably replied, "A Republic? We had 13 Republics? Are you telling me you brought us greater centralization of government power?! This does not bode well at all" [Depending on whom you relate this story to, you can add that the women likely said "F-ck you" at the end.]

While I have great respect for pretty much all prominent libertarian theoreticians (von Mises, Hayek, Rothbard...), including the mandatory libertarian love-hate relationship with Ayn Rand, and even though I probably agreed with Friedman the least on the issues, I have to concede that he was probably the most inspirational modern libertarian thinker. He really understood the nature of the long-term battle, and because that informed his strategy he became easily the most influential libertarian to date.

First, is the insistance of the voting public to conceptualize corporations, governments and economic activity in general as if it was just like interacting with your neighbors. People see corporations as selfish or generous independently of what they may think of the people constituting the corporation.

For instance people feel corporations are being irresponsible and greedy if they don't pay their foreign workers at least such and such per hour. Paradoxically, however, they don't seem to feel that the stockholders of that corporation have any obligation to open their wallets and simply give these third world residents money nor do they feel that other corporations who aren't even giving these people any job much less a high paying one are under any obligation.

This is just one example, corporate taxes (as opposed to just taxing the wealth gains by individuals) is another and the pernicious effect of this conception is to inevitably errode economice freedom. The intuitions that work well when dealing with your friends will inevitably recoil at the organizations that free enterprise creates even if they result in good for the individuals involved.

2) The second point cuts the other way. While I think there are problems with our attitudes to economic freedom I would also point out that for most people *economic* freedom is not really an end in and of itself. People want political freedom, freedom to screw who they want and so forth and various social benefits.

So sure losing economic freedom may be a harm (loss of efficency) but if it brings other benefits and our constantly growing economic riches can handle the inefficency what's the big deal?

The Anti-Federalist position has long been undeservedly neglected in both the study of history and the Constitution. Looking back from centuries later, many of their warnings proved to be remarkably prescient, even if they took decades or centuries to play out.

The problem with economists has nothing to do with being either too right or too left. While economists envy and try to emulate the hard sciences such as physics, they fail at it. Only a handful of academic economists warned about the coming financial crisis that has overtaken the US and threatens to send us into another Great Depression. The few that did were called names like Dr. Doom. The problem with their methods is they can't detect an impending phase change. They mainly look at fairly smoothly changing macro variables.

Without regulation and oversight, most people will borrow and spend much more than they can possibly repay. Indeed, many people do not accept the concept that debts must be repayed. There is no longer a strong social stigma associated with being overextended, but there is a strong stigma associated with not driving an acceptable vehicle. A people so inclined will self destruct under complete economic liberty.

You're ignoring the fact that we have a government monopoly specifically charged with managing the availability of credit. Artificially low interest rates are why people went into debt- that's exactly what low interest rates signal rational market players to do- not our rejection of the eternal quasi-Luddite complaint that Americans need to be more spartan in their tastes.

You will notice that the government hasn't been able to manage to increase availability of credit in the mortgage market lately. People spend because businesses are very competent in creating demand, as they should be. Credit is fine as long as there are regulatory limits, both to protect the individual from themselves, and to protect the system.

Yes, the government did manage the increase in credit in the mortgage market. It was part of a deliberate, openly stated strategy to increase home ownership. It wasn't just a spontaneous jump in the increase in demand for homes.

Great Post, I always like being reminded of Friedman's wisdom. I have to say however that I agree with the poster above that Liberty must be defended politically and intellectually constantly, you cannot do one and then the other. The masses forget too quickly to make a clever intellectual defense of liberty before ever attempting to establish liberty politically. I also loved the usage of the quote, "A republic, Ma'am, if you can keep it!"

The government hasn't been able to increase mortgage market credit availability lately, i.e. reduce interest rates in the past six months. Mortgage rates remain high despite fed discount rate cuts and a historically low yield on the ten year Treasury bond. There is no government monopoly on credit.

The housing bubble was caused when the government relaxed lending regulation, which allowed people who did not have access to loans under FNMA regulations to borrow and spend more than they were able to repay. In this case, the demand for housing was already there, but the unqualified buyers were previously kept from borrowing and spending by FNMA lending standards.

I hope nothing I said in my post above suggested I disagree with your observations on the anti-Federalists. I agree completely.

As for Peter Robinson's article, it was well written, but in terms of principle it is much easier to argue against auto industry bailouts if one has not gone on record a month earlier as being comfortable with financial industry bailouts. In each case bankruptcy wouldn't bring societal disaster, merely the transfer of assets into putatively more competent hands.

This is just one example, corporate taxes (as opposed to just taxing the wealth gains by individuals) is another and the pernicious effect of this conception is to inevitably errode economice freedom. The intuitions that work well when dealing with your friends will inevitably recoil at the organizations that free enterprise creates even if they result in good for the individuals involved.

Interesting post. Let me just point out that free markets don't create corporations -- governments do, through incorporation. One might argue from a free-market perspective that corporations violate the basic principles of property by place the individual at a remove from his or her property and how it is used.

Perhaps all large, jointly owned businesses should be partnerships, like Lloyd's of London.

In a corporate system, shareholders are protected from legal liability, blunting the incentives for corporations to avoid criminal conduct. They are protected from the company's debt, blunting the free-market incentives for caution in business ventures. If the gains are personalized, but the risk is socialized, the incentive to gamble is huge whenever there is access to risks where the potential losses are greater than the original stakes.

If one wants to seek a free-market remedy to spectacular collapses, like Enron and AIG, which leave non-owners holding the bag, perhaps we should do away with corporations, whose legal psuedo-personhood is less than libertarian in principle.

ARCraig - Funny how Congress' focus on increasing home ownership doesn't seem to correlate at all with the increase of subprime mortgages... it's almost like one has nothing to do with the other. Yet deregulation of lending standards, and allowing smaller haircuts &higher leveraging somehow correlate perfectly with the bubble.

In a corporate system, shareholders are protected from legal liability, blunting the incentives for corporations to avoid criminal conduct. They are protected from the company's debt, blunting the free-market incentives for caution in business ventures.

Seems to me that if there's one job for government, it's prosecuting people for criminal conduct. As for running up debt or otherwise poorly managing a company, the problem for shareholders is that their shares fall in value. So no, they're not protected.

I fondly remember Friedman's "Free To Choose" television series, which included a segment by Friedman followed by a group discussion with commenters of varying philosophies. In the original series (later re-done) a very young Thomas Sowell would just politely skewer his collectivist counterparts.

Seems to me that if there's one job for government, it's prosecuting people for criminal conduct.

But a corporation can commit (and be held responsible for) criminal acts while no real person is held accountable. Problem.

As for running up debt or otherwise poorly managing a company, the problem for shareholders is that their shares fall in value. So no, they're not protected.

You're wrong. Any business venture can incur losses greater than its total value. If the business is a partnership or other non-corporate structure, the creditors then come after the personal assets of the owners, until the losses are repaid. Thus, without a corporate structure, the founders of Enron die penniless in the gutter, which is something any real libertarian should want.

The moral hazard can be understood with a simplified example: suppose a company worth a billion dollars has a chance to buy a mortgage company which has a lot of debts and assets of uncertain value. No one knows how much the assets are worth, but the market thinks that there is a 50% the company is worth $5 billion, and a %50 its value is -$10 billion -- it's debts and obligations exceed its assets by that amount.

Now, rationally this company is worth nothing, and one would have to pay someone a couple billion to take it on. But a coporate shareholder's calculus of risk is different. He sees a 50% chance at a share of $5 billion -- more the adequate compensation for his 50% risk of losing his share of a billion dollars. The stage is set for a market failure caused by government regulation -- in this case, the regulation that protects shareholders from any costs of their decisions over and above the amount of their investment. Any risky behavior -- a risky loan, a risky takeover, a risky strategy of polluting and trying not to get caught or bribing a legislator -- any risky strategy will be favored in the modified cost/benefit analysis of the corporate shareholder.

The stage is set for a market failure caused by government regulation -- in this case, the regulation that protects shareholders from any costs of their decisions over and above the amount of their investment.

What costs? They bought a company that went bankrupt and lost their investment. What other costs are you talking about? Actually, if management took that kind of risk with my investment, I'd be pissed. I'm not investing my retirement funds to have somebody play the lottery with them.

As for corporations but not individuals being held responsible for criminal actions, I'm clearly not the legal eagle here but I do seem to recall corporate executives getting charged individually with felonies and going to jail. Anyway, again, as a stockholder I'm not going to be pleased if management gets the company hit with a huge fine or lawsuit for illegal activities.

Where you have large numbers of people investing in diversified portfolios--like for their retirement--if individual investors are to be held accountable for law-breaking by the management then it would simply destroy that avenue of savings and investment. On the other hand, where you have a small number of people incorporating in order to escape the consequences of their own actions, my impression is that courts do stand ready to pierce the corporate veil. At least, that's how it was explained to us at a meeting of my gun club, when we decided to get a very large insurance policy rather than risk our homes.